Indian Economic and Political History

2016-17
Session 4

Rajesh Bhattacharya
rb@iimcal.ac.in
Office: M-205, NAB
Office Hours: Monday/Thursday: 4:30-6pm

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IIM Calcutta

The decline of merchants and bankers

during early Colonial rule
The Indian merchants and bankers were not politically
powerful under the Mughalsbecause the Mughal state was
not depended on them.
They became powerful during the decline of the Mughal
empire for servicing the financial needs for regional powers.
As India passed into the hands of EIC, there was once again a
decline of indigenous bankers and merchant due to
-- Entry of company servants and private British traders into
inland trade.
-- The introduction of common company legal tender, postal
service and district treasuries led to the decline of the
indigenous bankers and financiers.
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EIC and private traders

EIC was under pressure from private traders and interlopers who
were interested in trading in India.
EIC adopted a more liberal attitude towards private traders.
Since 1813 (EIC loses monopoly in trade), private traders enter.
Private merchants adopted a business organization called
agency houses, so called because agency houses
a) acted as business agents for others against a fee and
b) agent of a firm in London
Agency houses participated in China trade (opium) and indigo
trade.
Agency firms needed Indians as agentsknown as baniansto
assist them in a myriad ways. The banian was the centre of the
operation and received a percentage of sale proceeds.
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Comparison: Variables explaining emergence of

modern industrialists in Ahmedabad, Bombay
and Calcutta
a) Occupational background: whether industrialists
came from trading/banking background or
artisan/manufacturing/technical background
b) Attitude of colonial state: To what extent British
colonial rule hindered or promoted industrial
development
a) Minority status of community (religious , caste-based
etc.): migrant traders as minority community in host
society often succeed more than the native majority
community; Max Weber argued there is a strong
connection between religion and entrepreneurship
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Industrialization in Eastern
India: Marwaris in Calcutta

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Major Industries in Calcutta

Jute industries in Bengalcontrolled by the
Scots. At the time of World War I, all the 50 jute
mills were under the control of European
managing agencies, and 97% of the directorial
positions were held by Britons.
The Britons managed 86 % of tea plantations.
96% of the largest tea companies had board of
directors that were exclusively British .
47% of the firms in coal industry were managed
by non-Indians. 89 % of the major collieries were
controlled by European, mostly British, firms.
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The entry of Marwaris in Industries

The Marwaris a) had kinsmen scattered
throughout India which helped them in
networking and b) they amassed capital in trade,
finance and speculation (using instruments like
futures and options)
They dealt as brokers, banians, sub-contractors,
agents to Europeans, making themselves almost
indispensible to trade practices.
They operated in trading of opium, spices, jute,
etc.
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Entry of Marwaris into industry

Marwaris moved from trade into industry in 2 ways after
WWI
i) The establishment of new jute mills and collieries
ii) Steady purchases of shares in companies controlled by
European managing agencies, to a point where Marwaris
could first force their way into the boardrooms and then take
over the firms
The Marwaris provided the British with raw jute, short-term
credit, and long-term loans. The British did need mediators in
trade and finance, but did not welcome the Marwaris.
Scottish arrogance and consequent business hostility.
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Industrialization in Western
India: Parsis in Bombay

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The Western Scenario in the first half

of the 19th century
Bombay, coming later under the British rule, was
spared the worst excesses of the early decades of the
Company rule.
Also, the Bombay Presidency being a chronically
revenue-deficit area, depended on remittances from
the Bengal Presidency, which made the EIC
dependent on merchants and bankers.
Bombay replaced Surat by the middle of the 18th
century as the main port on the West.
The Europeans made their base in Bombay and drew
Indian merchants and shipbuilders, particularly
Parsis, from Surat area.
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The Parsis of Bombay

The relationship between the Parsis and the British
in Bombay was a continuation of their positive
relationship in Surat.
As the Parsis in Surat were economically
independent and prosperous, the British had to
create an attractive economic environment to
persuade them to migrate to Bombay.
The Parsi community had a unique relationship
with the British. They were more Westernized
than the other communities. They were loyal to the
British during the Mutiny in 1857.
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Opium Trade
Since 1770s the fortunes of Indian merchants linked to
the China trade. Opened up opportunities for merchants
in Ahmedabad, Surat, Broach, Cambay, Baroda, Bombay.
In Western India, opium trade remained a clandestine
operation. Malwa opium was grown in regions within a
princely state. Thus its supply was controlled by
indigenous merchants and private Indian merchants
shipped it to China and earned profits. EIC couldnt stop
this and hence had to legalize opium trade against export
permits.
In contrast, in Bengal, production and trade of opium was
tightly controlled by the Company.

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Parsi industrialists
The pioneers in the Bombay textile industry came almost
entirely from among the Parsi traders, shippers and financiers
of Bombay
The Parsis started their careers as traders (in opium and raw
cotton). Then, some became formal brokers to British trading
houses and, finally, diversified into the cotton industry.
Parsi tradition was to send their sons to work in the British
firms, where they could learn on the job. The European
businesses in Bombay warmly welcomed these trainees.
Yet, othersHindus, Muslims, and Jainsalso became
increasingly important in this period.
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Difference between Western and

Eastern India
Bombay benefitted from the large class of merchants from
Gujarat, with a larger ethnic and communal diversityHindus,
Parsis, Muslims, Jains etc.) n Bombay business circle.
In the East, business was entirely dominated by Europeans,
until challenged by the Marwaris in a bitter business fight
colored by racism. Bombay benefited from a more dynamic
atmosphere of emulation and competition and less racial
and communal strife.
The Bombay industries also showed greater flexibility to adopt
innovations and tackle changing market conditions, including
orienting themselves towards the domestic market.
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Industrialization in Western
India: Hindus/Jains in
Ahmedabad

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Ahmedabad
After 1818, the British officially began to rule
Ahmedabad. but the old city preserved its traditional
structure of guilds and castes as well as its commercial
outlook.
The Indians built Ahmedabad. British did not have a
major role in commercial life of Ahmedabad.
In the early 18th century, many weavers, traders, and
artisans fled the city because of the war between the
Mughals and Marathis.
Stable administration by the British brought indigenous
traders and weavers settled there again in the
nineteenth century.
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Mode of financing Ahmedabad textile

mills
The occupational background of the textile industrialists in
Ahmedabad differed from that of their counterparts in
Bombay.
None of them had any experience in a British trading firm or
had ever worked as a broker for a European trading company.
Some of them profited handsomely from cotton trade during
American Civil War. They mostly came from banking
background. Ranchhodlal Chhotalal, who set up the first mill
in Ahmedabad, was a Hindu civil servant.
Banks and shareholders financed Bombays mills to a greater
extent than in Ahmedabad. Ahmedabad mills were financed
by small individual deposits for a fixed interest rate.
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Occupational Background of Pioneers

in Indian industries
In India, the early industrialists had a
background of trading, banking and
speculating.
Indeed, they were not artisans, craftsmen,
technicians, or mechanics (i.e. people
connected to manufacturing) who had owned
small workshops and then expanded.
This is often cited as the major difference
between Indian and British industrialization
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Attitude of colonial state

In Calcutta, Indian businessmen were excluded
from the upper ranks of the business hierarchy
and faced British racism and hostility.
In Bombay partnerships between Europeans and
Parsis were a common feature and there was
much less hostility and discrimination.
In Ahmedabad, the colonial state displayed
neither a positive nor a negative attitude towards
Indian businesses.
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Minority status and religious

background of pioneer industrialists
Marwaris in Calcutta: They were Hindus and
Jains from Marwar; the British considered
them insiders but the Bengalis considered
them outsiders.
Parsis in Bombay: Initially, they were a
majority, later they became a minority since
1850s.
Hindus in Ahmedabad: Majority community
and insiders.
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